Research Handbooks in Corporate Law and Governance series
Edited by Robert W. Hillman and Mark J. Loewenstein
Chapter 6: Agency in the alternatives: common-law perspectives on binding the firm
Although agency is not itself a form of business entity, the implications of agency doctrine are inescapable in explaining how entities “get things done” with concrete or legal consequences, in particular in interactions with persons situated externally to the entity. More broadly, agency law is foundational to any entity, furnishing as it does the bases on which the law ascribes consequences to conferrals of power and authority within any organization. This chapter focuses more narrowly on agency law’s external aspects, that is, the bases on which an actor’s conduct has legally salient consequences for a firm that the actor represents in dealing with third parties. Principals often argue, after the fact, that an agent acted without authority and that the agent’s action should not carry legal consequences for the principal. Across legal systems, agency law addresses these arguments through doctrines that bear some similarities but also differ in significant respects. All systems, though, draw a fundamental distinction between binding the principal on the basis that the agent acted with actual authority, consistently with a reasonable interpretation of the principal’s expressed or known wishes, as opposed to other bases for attribution, such as apparent authority. This chapter uses the perspective afforded by the common law of agency to assess issues about external agency in connection with alternative business entities, in particular general and limited partnerships and limited liability companies (LLCs). Although partnerships and partnership statutes are not recent phenomena, ongoing controversies and confusion surround the bases for external agency within LLCs.
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